05/11/2008 (Bangkok Post) - The government has pledged to find 3.3 billion baht to shore up the price of palm oil, which has plunged 64% from its March record on concerns about the slowing global economy.

Commerce Minister Chaiya Sasomsab said the government would buy 150,000 tonnes of crude palm oil from crushing factories at 22.50 baht a kilogramme on the condition the factories buy fresh palm nuts from farmers at 3.50 baht/kg.

Mr Chaiya was speaking after meeting Energy Minister Wannarat Charnveerakul, Agriculture and Cooperatives Minister Somsak Prissananantakul, representatives from the private sector and Democrat MPs for Krabi, Chumphon and Surat Thani, the country's largest oil palm production areas.

Mr Chaiya said the source of the funds would be decided this week, but it was likely to be the 70-billion baht central budget of the prime minister and the energy fund.

The Energy Ministry had promised to allocate 675 million baht from the energy fund to buy 30,000 tonnes of crude palm oil to supply biodiesel projects in particular, he said.

The sharp decline in palm prices has come in the wake of the rapid fall in world crude oil prices, which have shed 45% since July on concerns about the slowing global economy, after reaching record highs earlier.

As a result, the drive to produce alternative fuels, including biofuels derived from palm oil, has lost some of its urgency.

More palm oil raw materials have again become available for food processing.

Malaysia and Indonesia, which account for 80% of the world's supply, have had to reduce export prices. In addition, Malaysia faces defaults on its export orders to China and India.

As a result, both countries now have exceedingly high stockpiles.

Thawee Srisukon, president of the Thai Oil Palm and Palm Oil Association, said Malaysia and Indonesia currently have combined crude palm oil stocks of five million tonne.

This had led to Thailand also having relatively high stocks of about 170,000 tonnes, he said.

Thailand's total crude palm oil production is estimated at 1.4 million tonnes this year, exceeding demand by around 300,000 tonnes.

Earlier, production was estimated at only 1.2 million tonnes.

Of total production, 70% is targeted for domestic consumption and the rest for biodiesel production.

Production of palm nuts is estimated at 8.6 million tonnes this year versus 6.08 million tonnes last year.

Thai crude palm oil prices hit a record-high of 44 baht/kg, and farmers enjoyed a palm fruit price of 6 baht/kg in March this year.

The price of crude palm oil has fallen to 15.75 baht/kg and palm nuts to 2.20 baht/kg.

Wiwan Boonyaprateeprat, secretary general of the Thai Oil Palm and Palm Oil Association said the government, particularly through the Energy Ministry, should implement policies that encourage people to use more biodiesel.